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Updated Report Details Impact of Retaliatory Tariffs on U.S. Agricultural Exports

The non-partisan U.S. Congressional Research Service issued a report on 31 December focused on the effect of retaliatory tariffs on U.S. agricultural exports. After the United States imposed Section 232 tariffs on steel and aluminium imports and Section 301 tariffs on mainland Chinese exports to the United States, affected countries have established additional tariffs of their own on a range of U.S. products. As a result, U.S. agricultural products worth some US$27 billion are currently subject to retaliatory tariffs in mainland China, the European Union, Turkey, Canada and Mexico. “Any loss of agricultural exports would be a concern, since about 20% of U.S. farm income stems from exports,” the report says. “These retaliatory tariffs may adversely impact U.S. farmers, ranchers, and food producers by eroding the competitiveness of U.S. commodities in these important markets,” the report adds.

The retaliating countries include some of the United States’ leading agricultural and food export markets. Canada is the leading export market for U.S. agricultural and food products while mainland China has ranked second, Mexico third and the EU fifth. While Canada is forecast to remain the top export market for U.S. agricultural and food products, the U.S. Department of Agriculture expects that mainland China’s rank will drop from second to fifth, behind Mexico, the EU and Japan. For certain products, total U.S. agricultural exports are expected to decline, along with prices received by U.S. producers.

More than 800 products – including soybeans, pork, dairy products, fruits and nuts, seafood and processed products – accounting for almost all U.S. agricultural and food exports to mainland China, currently face additional tariffs of five percent, 10 percent, 15 percent, 25 percent or a combination of those amounts. U.S. exports to mainland China of products subject to additional tariffs were worth about US$20.6 billion in 2017.

Mainland China has levied retaliatory tariffs of 25 percent on U.S. soybeans, raising the total tariff rate to 27 percent. About half of U.S. soybeans are grown for the export market, with mainland China being the largest single foreign buyer at US$12 billion in 2017. However, U.S. soybean exports during January-October 2018 fell by 63 percent from the same period a year earlier, while U.S. soybean export prices have also declined (between June and late September 2018, the price of U.S. soybeans for export from the Port of New Orleans dropped from US$10.89 to US$8.68 per bushel). Not surprisingly, the American Soybean Association has expressed “extreme disappointment” at the U.S. government’s actions. 

Although soybeans constitute the largest affected crop, various other U.S. agricultural exports have been negatively impacted in the mainland Chinese market including apples, cherries, sorghum, pork offal, premium seafood and American ginseng. Mainland China only opened its market to U.S. apples in 2015 and domestic apple growers view it as a potential growth market. Mainland China imported about US$18 million worth of U.S. apples in 2017 when the tariff rate was only 10 percent, but a retaliatory tariff of 40 percent is expected to significantly dampen demand. U.S. cherries also face an additional tariff of the same magnitude, which will certainly reduce demand for a product that experienced a 68 percent jump in shipments to US$123 million in 2017.

Mainland China is also a leading export market for frozen edible pork offal, a product that according to the report has little value in the U.S. market but commands a premium price in the mainland. U.S. pork producers exported US$251 million worth of frozen edible pork offal to mainland China in 2017, accounting for 31 percent of total exports of those products. U.S. frozen pork offal currently faces a 50 percent retaliatory tariff in the mainland in addition to the regular 12 percent tariff.

Mainland China has also established a retaliatory tariff of 25 percent on more than 150 varieties of U.S. seafood products, affecting nearly all of the US$1.2 billion worth of U.S. seafood exports to the mainland in 2017. Mainland China was the destination for a quarter of all U.S. seafood exports in 2017 and has been the leading export market for U.S. seafood since 2011. Domestic consumption of higher-value seafood, including salmon, cod, shrimp and lobster, is increasing in the mainland.

In addition, Beijing has applied a retaliatory tariff of 25 percent on imports of U.S. American Ginseng. Ginseng is a root that is used in teas and certain other food and medicinal products in Asia. In 2017, mainland China accounted for 60 percent of total American Ginseng exports, valued at US$22 million.

Many of these U.S. exports face robust competition from other countries, including, in the case of soybeans, Argentina, Brazil and Paraguay. The report also voices the anxiety of U.S. agricultural groups about trade deals reached by other nations, including the EU-Canada deal that went into effect in 2017, a new EU-Mexico deal and the recent entry into force of the CPTPP.

The report concludes by discussing U.S. government efforts to help farmers impacted by the loss of export markets. The USDA has established an aid programme for certain affected exporters although the agency insists this facility will not continue indefinitely. More recently, after the 1 December 2018 meeting between President Trump and mainland Chinese President Xi Jinping in Buenos Aires, mainland China resumed purchases of U.S. soybeans even as trade discussions continue in 2019.

Content provided by Picture: HKTDC Research
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